Random Thoughts on The City, Wall St & Capitalism

MERRILL LYNCH:Cannot Recommend A Purchase

2008-10-10T16:13:00.006+00:00

Well I did warn you.Just because BofA was taking this heap over the ride isn't finished.Unless you're a sovereign wealth fund, that is, easily duped with money to burn,you had ample opportunity over the last year to bail.Happy Days!

SHIT happens in America.

2008-09-24T19:13:00.001+00:00

Euphemisms and acronyms.Wall St. and The City seems to be full of them.Years ago Morgan Stanley used have a product called 'OPALS'.Short for Optimized Asset Linked Securities.I can't remember if it was any good.Sure it was popular with clients.I'm assuming in reality it was a crummy product.After all excellent products aren't exactly at the top of an investment bank's list of must haves when you're trying to rip off,l mean ''service'' clients.

The new Resolution Trust Style bailout entity is described as 'TARP'.Troubled Asset Relief Programme.Surely it should be called Securitized Holdings Intervention Trust or 'SHIT'.Because if the Hank and Ben show get away with it the US will be in real 'SHIT'.

RB

Dollar Bail Out

2008-09-22T19:24:00.003+00:00

I don't mean The Bailout,you know Resolution Trust 2,or Toxic Bank.Whatever you want to call it.The proposition itself is not new but why does Hank want his proposal/decisions to be outside the scope of judicial review? I was long dollar/Sterling up to 1.75.But given the extra dollars that will need to be injected,and the resulting increase in budget deficit both the US economy and the dollar are just plain doomed.Short dollars.I mean bail out.

RB

MERRILL LYNCH:DEATHWATCH

2008-09-16T19:07:00.002+00:00

I wept when l heard the news.With laughter.If you didn't see this one coming you must be a real believer in the Blundering Herd.

I'm mulling over yesterday's events.I'm a bit annoyed.I was sure Merrill was going to Chapter 11.It was much worse run than anyone could dream of.I hadn't anticipated anyone could be stupid enough to take it over.But then Bank Of America came along.What's B of A trying to hide that it's buying up Merrill at a massive premium to it's Friday close price.I'm hoping after proper due diligence B of A will see the light and let it fail.It's an awful excuse for an Investment Bank.Oh yes,thumbs up to Thain.Good one.

RB

Regulators,Fools,Merrill:Mid Year Update

2008-08-02T23:17:00.003+00:00

I haven't written anything for a while.There was nothing to write about.All that's happened in the last six months is that an investment bank went under,oil & gold reached new peaks,liquidity has dried up,market confidence is low,getting lower.Any fool could have predicted that,unless of course you run The Fed or The Bank of England.In which case,you're beyond help.None of these events were unpredictable.No black swans here.

I've been taking it easy since March.Watching the credit crunch unfold.It's been a source of much amusement.I like it when companies go under,especially financials.It's Darwinian,it's necessary,destructive capitalism at it's best.It's exhilirating.There are just too many people working in financial 'services' companies.They're fat from the bumper harvests of previous years,I don't have a clue what most of these people do.Do you? Now the slaughter house beckons.Bring on the savage cuts,let the blood run,the downturn spiral.

All the FSA managed to do was fine Woolworths for inaccurate accounting,while Rome burns.Good work.Go back to sleep.The regulators in the US have been busy too,banning naked short selling (just go synthetic short-it's less risky & probably cheaper these days).They've also been busy ''nationalising'' failing US regional banks.In the home of unbridled markets,very odd.Friedman would turn in his grave.

So Merrill has written down approximately 45 billion dollars to date,and another record quarter of losses.Another round of capital raising.The nice chaps at Temasek are lapping up more stock.It's a bargain $22.50.As if they hadn't lost enough on their initial stake (see earlier blog).The best thing about modern Sovereign Wealth Funds is that they have deep pockets and will believe anything you tell them.That's where investment banks come in and fleece them,l mean allow them to invest in their businesses that are ideally positioned for growth in the future.

Bizzarely the market marked up it's shares after it's latest balance sheet re-structuring exercise.It sold about 31 billion dollar's worth of 'risky' CDOs to Lone star for around 22 cents in the dollar compared to face value.An epiphany in this particular episode of Merrill 's history? A watershed.Now it's all clean and fine and shiny and disease free right? Wrong.Look at the deal again, Merrill lent Lone Star most of the money to finance the deal.Ok nothing wrong with that,but the net effect of the deal is that Merrill has capped any potential upside from it's CDO portfolio,and has taken all the downside risk.If the instruments continue to drop in value,it's all pretty much worthless.They could end up LOSING on the deal.So though it looks good on paper for now,this particular method of balance sheet clean up is actually very stupid in this envirionment.I have no idea who advised them on this deal.Looks like they advised themselves.

One analyst has pointed out that Merrill is losing 52 million dollars a day.I'm surprised it's as low as that.Worse is to come.Can't wait.

RB

Rating Rating Agencies

2008-02-25T23:20:00.000+00:00

The US stock market rallied today.Mostly on the back of Ambac retaining it's triple A rating,and MBIA being taken off the downgrade sick list.Ambac's trying to raise 3$ billion to bolster it's capital base.

Phew,panic over then,things can return to normal.No more write downs,and the credit market will return to normality very soon.

Nah just kidding.Here's the problem.Ratings agencies earn their revenues from the bond issuers.They get a fee to provide the the rating from the issuer.This is called conflict of interest.Let me illustrate you how this might be a problem.Remember Enron? Weeks before it went bankrupt these very same ratings agencies were assigning them healthy credit ratings.

I suspect they will have to downgrade the monolines,it's just a matter of when.

Sovereign Investment Funds,oil & Stagflation :SELL US STOCKS

2008-02-20T23:36:00.002+00:00

Oh dear.The Fed lowers growth forecasts,predicts increased unemployment,and oil also jumps to 101$ on supply concerns.It's the 70s all over again,and this time not just disco.Stagflation writ large.What should the Fed do? Here's the problem.It doesn't know and even if it did it's too late.

Question:who really controls the US economy now? Answer the US consumer,unfortunately he's broke at the moment.Who then if not the US consumer? It's the Sovereign Investment Funds of the Middle East silly.They've bought into the financial infrastructure of the US via Wall Street.Now OPEC will start cutting oil output.They are also probably behind the hedge funds which are taking positions in the oil market now.As the price of crude goes up,this will inject enormous inflation into the US economy and become a huge drag on growth.If you thought a recession risk was 50:50,it's probably wise to reconsider.

In a serious downturn who do you think will be buying up America's prized assets on the cheap?You guessed it.Sovereign Investment Funds.The real change after this recession will be the fact generations of American workers yet to be born will be in effective bondage to the wealth funds of the developing world.

The US in it's hunger to consume now has mortgaged away it's future.It's just another overleveraged bet that went wrong.Dump US stocks.

FGIC-in great!Monoline doing the splits? Seeing double.

2008-02-17T21:51:00.003+00:00

The big news isn't the Northern Rock nationalisation.I predicted that a while back in an earlier blog.The really big news is on the other side of the pond.You'll miss it if you blink.

Last Friday FGIC,one of the large bond insurers put forward proposals to split itself in two.Monoline to Duoline it were.It proposes to house the low risk municipal bond insurance piece in one entity,leaving the now worthless credit-default swaps insurance trash in the other.A perfectly good idea actually.

The municipal bond insurance piece then will have a higher credit rating,presumably triple A.Why does this matter.Well think about it,the the remaing piece (the writer of the risky stuff)then can be downgraded or even file for insolvency or chapter 11.

If this bifurcation process into two companies occurs and AMBAC,MBIA and others follow suit,it will result in the end game for some investment banks.The instruments they have have insured will have to be written down on the investment banks' balance sheets to zero.The G7 ministers agreed that about 400$bn of writedowns will result from sub-prime.Yet we are only half way there,if that.Maybe once monolines split,then we can see who's been fiddling their balance sheet reporting.Naughty Bankers.

Of course l believe,and sincerely hope Merrill will be on this shit list.

RB

King-dom Come (Back Again)

2008-01-30T21:04:00.000+00:00

We expect very little of our public servants.So we get what we deserve.The re-appointment of Mr King is not good news.

Merrill Lynch:Ahmass Fakahany get's f..resigns.

2008-01-28T19:44:00.000+00:00

Ahmass Fakahany Resigns (According to CNBC)

I did tell you this would happen.My earlier blog of 29 Nov 2007 entitled,Merrill Lynch:You don't have to be in-thain to work here,but it helps,explains why.Wonder what the severance will be for the worst risk manager in the world.My guess around 20$ million cash & stock.Sounds about right for tanking a FORTUNE 500 bank.See below.Is Greg next?

RB

Societe Generale:'Rogue Trader'?

2008-01-24T23:20:00.000+00:00

I hate the term 'rogue trader'.There's no such thing.Just poor controls.I don't know the details,they're not important.The young man at SG has just racked up losses of $7 billion.I hate the term losses,lets call them negative profits.

So you make a little, lose a little.I feel rather sorry for the trader.He hasn't really done anything wrong in real terms has he? It's all fake electronic money anyway.

Think about this,assume his vanilla directional market bet had gone the 'right' way.That is to say it was up 7$ billion in profit.Do you think he would even have made the news.When the 'rogue trader' makes money for the bank he is called a star trader aka financial wiz.

It's just bad luck, they should leave the young man alone and make him head up a risk management team.

RB

Market Volatility : Let the bad times roll.

2008-01-22T20:39:00.000+00:00

Well the recent recent volatility will be nothing compared to what will happen if the monolines go under.Imagine the whole of the developed world selling most of the bonds they own and most of the world's banks balance sheets severely distressed.The near dooms day scenario is a bit like every bank with write offs like Merrill without the sovereign wealth funds to help them out.Nasty huh?

The Fed's emergency rate cut today was laughable.What on earth will lowering interest rates do in a world where trust has broken down.Banks aren't lending to each other,not because of lack of liquidity/cost,but lack of trust.Guess what, money can't buy trust.A novel concept.

Sadly Mr Bernanke's only trying to fix the mess his predecessor,Mr Greenspan made.50 years from now Greenspan will be remembered for one thing only.As the Central Banker who precipitated the conditions for the worst asset inflation bubble for a century for no apparent reason.He has now joined a hedge fund,Paulson & Co, specialising in essentially selling sub-prime short.It's the opposite of a virtuous circle.A vicious cycle.

Assuming deteriorating US corporate earnings,high unemployment,poor consumer confidence and impaired bank balance sheets,then the conditions for a deep recession in financial markets are already here.

In the end the the Fed has only another 350 basis points worth of ammunition.What 'medicine' will it use after that? After that all recovery is based on hope.
Exciting times really.The financial services industry needs a severe downturn to get rid of all the idiots in the investment banks.If you don't know who they are.You're probably it.Here's hoping markets continue to deteriorate quickly.Why do l care,I'm long cash.

RB

Monolines reaching the end of the line?

2008-01-17T22:00:00.000+00:00

Monoline Insurers : Key to future write down numbers

At the moment bond insurers are having their credit ratings downgraded.This is of course having a knock on effect on the value of all the debt on Wall Street's balance sheet.

If you think the write downs by Citi and Merrill are bad now, don't be fooled.If MBIA,AMBAC or another one of these insurers goes bust,then everything they've ever insured is instantly worthless.Monoline insurers are used by investment banks to protect against default for their toxic debt tranches/packages.If the insurer fails,depending on the bank's exposure, the bank loses even more.It's lose lose all round.Cool or what.

One of my predictions for 2008 (See Jan 4 2008 blog below) was that a major US monoline insurer would go bust.AMBAC's credit rating was downgraded today,as a result it lost nearly half it's value at one point. If it/similar went under then the likelihood of a major Wall street house being tipped into Chapter 11 would be pretty much guaranteed in my opinion.Not to mention substantial mark downs in the stock price of the surviving ones.

This could be the next major development in the sub prime story,and has enormous entertainment potential.Can't wait.

Keep an eye on them.

RB

Banking career advice for the young (and young at heart!)

2008-01-15T12:53:00.000+00:00

.A number of readers have privately e-mailed me as to what l think the true position is at Merrill Lynch.I am sad to say l cannot proffer career advice.Each person's position is unique.I think of my readers like snowflakes.No two are the same.Everyone is special.What l can say if you're unsure about what to do in any firm,especially a bank/similar,here are some generic questions you should ask your self.

A short guide to career due diligence, most of you already know this;but the late 20-something new meat has yet to be tenderised.This for them,l hope l'm giving something back to the young folks :

1.Do you believe top-down communication has been transparent and honest? I of course mean corporate 'honesty'.So not fraudulent counts as 'honest' in this context.

2.Do you believe any of the assurances provided to you by your manager/senior management .If it's something along the lines of,''we value our top performers'',''there will always be roles for exceptional people in our ( INSERT NAME OF COMPANY)'',"if you're giving better than your best/110% there's nothing to fear","We value people",''our core values are that we we treat our human capital professionally''.You should probably be packing up your stuff slowly and knocking out your hard drive before I.T. shuts off access.

3.Note though the sooner you leave,the better first mover advantage you will have over later leavers.Get into the market before the crowd.You're more likely to find employment else where,if you want to work again,especially for more junior/middle management roles.

4.On the flip side, if you stay what is the probability of a decent redundancy pay out?.Redundancy In your company this may be called ''voluntary or involuntary separation'' ,''right-sizing'',''role elimination'' or even ''redundancy".

5.If you do decide ''to stay'' and sit it out,consider what information you have on your operating environment about malfeasance or misfeasance.Any memos,emails,records of meetings? Get proof.Evidence is key,ideally these days of regulatory breaches.They're the juiciest. This will always be useful in severance 'negotiations' with HR later.

6.The restricted stock problem.If you were compensated in restricted stock mostly,you could try and get new co. to buy you out in real cash (unlikely but always worth trying it on.It's just a monetisation trade really) or ask for straight stock for stock swap on same terms.Failing that remember restricted stock is not real.The numbers might look big to you now,but the value depends on performance of the share price.How do you know if your current employer will even be in business a year from now?You can't eat stock,go down to Starbucks and try to pay for coffee in restricted stock.They will laugh you out of town.It's essentially an illusory not so golden handcuffs for middle managers.You won't really lose anything by letting it go if you really want to leave.

In the age of the adversarial consumer society,employees only owe a duty of care to one person.Themselves.

Good luck you crazy young things!

RB

Merrill Lynch 4th Quarter write down hits 15$ billion:Abandon Ship

2008-01-12T17:03:00.000+00:00

As you will see from Bloomberg,Marketwatch,and the International Herald Tribune,Merrill is now expected to report a 4th quarter write down of 15$ billion.Apparently far in excess of analysts expectations.Where these analysts get their numbers from l have no idea.None of them seem to be able to build accurate valuation models for Merrill.The problem is many of them are innumerate snake oil salesman,unable to count nothing more than the loose change in their own pockets.I said last year in a previous blog (see below 30 Dec 2007) I expected a 4th quarter write down of 15$ billion.So it is.

After the news was announced,the shares went up to around 54$.This is called a suckers rally.My own valuation model estimates of Q1 & Q2 2008 losses for ML show that there is at least another 9$ billion which will be written off by mid year on top of the 23$ billion to date.My valuation model is extremely robust since and has been coded by of the finest brain in the city,me.It's been bang on to date.

Although Mr Thain is hiring all his ex-Goldman buddies to strengthen senior management,no matter how great the management is,at the current rate of write downs,the company will simply run out of capital.My current calculations suggest it's only the cash from Sovereign Investment Funds et al that is allowing Merrill to meet it's current wage bills.Some of the SIFs will undoubtedly make money out of their positions in US investment banks and brokerages.Increasingly this looks unlikely at Merrill.Temasek would do well to dump it's stake while it's up.

The bonuses were announced last Thursday,if you're a smart employee you could do worse than to abandon ship once it's been paid into bank account.No one would blame you.It's called survival.

RB

2008 Financial predictions

2008-01-04T17:48:00.000+00:00

2008 Forecasts

Like most ill informed pundits,my 10 Forecasts for 2008.A lot of it wishful thinking.

1. Oil reaches $125 (mostly on supply disruption concerns).

2.Gold breaks $1100 per troy ounce.

3.Dollar hits 2.40/£.

4.US interest rates hit 2.5%

5.At least one major Wall Street firm is taken over/Goes to the Wall.

6.Northern Rock is officially nationalised.

7.Dow falls below 10,000.

8.Bank of England independence officially retracted.

9.$ hits further record lows vs €

10.Major US monoline insurer goes bust.

RB

Going to the Wall (Street):Merrill Lynch

2007-12-30T14:41:00.000+00:00

I'm pretty excited about 2008.Observing Carnage in the financial sector is a very entertaining way to pass time.As Yogi Berra used to say,you can observe a lot by watching.

As you're aware l have taken a keen interest in Merrill's slow decline over the past months.I'm hoping things will only get worse for them.In the last downturn in 2001-3 there was a feeling that Stan cut into muscle ,not just trimming fat.In the ensuing months l would like to see it de-boned and made into a stew.The employees should start getting used to smell of Napalm in the morning.I think the major write downs and consequent lay offs around the corner.

It's true just before Christmas Temasek,the Singaporean state investor, bought a stake in Merrill.They injected $4.4 billion into the company.The share price reacted by going down.Why,well Temasek paid around $48 for their stake,a 13% discount to the market price.Not a confidence builder is it.Just because a share is cheap doesn't mean it's good value.Value and price are different metrics.

I read today that John Thain is desperately trying to get further cash injections,as a financial engineer he probably has some notion of true exposure.Scared, he should be.He's basically running a giant black hole of a balance sheet masquerading as an investment bank.

I can't wait for the 4th Quarter results.I've pencilled in writedowns around $12-15 billion.Bear in mind these will not be the full and final write downs.It's the amount they can quantify in that reporting period.

In the end l'm hoping for one of two outcomes in 2008.Chapter 11 filing,which would actually crack me up with laughter.It couldn't happen to a nicer investment bank,or an ignominious opportunistic bid from a cash rich bidder.Like Wal-Mart,or Krispy Kreme.Hey Everyone's diversifying these days.

Happy new year to all.A special message the Merrill Readers.Hope you go under.

RB

Nelson's column:Merrill Lynch new CFO announced

2007-11-30T18:31:00.000+00:00

I think I might be psychic.It's a big responsibility.It's the only 'skill' l have. After my piece yesterday,what should happen today-as if by magic.Oh Lordy!,Marketwatch reports that Mr Thain is hiring his CFO from NYSE,Nelson Chai,at Merrill.Looks like Jeff Edwards will get the heave ho or a 'lateral' move.No that's categorically NOT a demotion.You know that.He will probably be moved on to a similarly ''challenging" role.Let's all thank him first for doing an excellent job under very difficult circumstances.Right.

If I wasn't so short sighted my effigy-dart process would have revealed this yesterday.Damn.As l said he's the first of many that will be encouraged to look for other opportunities.Cool.Merry Christmas.

RB

Merrill Lynch:You don't have to be in-thain to work here,but it helps!

2007-11-29T23:21:00.000+00:00

John Thain is starting at Merrill from Dec 1.Once a new CEO starts,especially with a specific mandate to turn around a company,the legacy senior management should be afraid.

He will be firing some of the current senior managers,partly to draw a line in the sand to mark the beginning of his reign.Also to make room for Mr Thain to hire his own people.

I've been taking bets with my friends as to who we might think would get chopped.It's fun but hard.Our opinion is that all the Merrill's current senior management is pretty so so.It could be anyone.Being smart,even-handed,sensitive and logical people we devised an almost fool proof way of predicting the first two out of the door.
We bought small effigies (about 7 inches tall) to represent each current senior manager,stood them on a table.Stepped back ten paces and then threw darts at them.

I had two hits.Well l'm short sighted.The first 'hit' was Ahmass Fakahany.Creepy.Well it was under his watch as risk manager that the balance sheet got loaded up with rubbish,and credit exposure went out of control.So if my voodoo dart throwing process is any good,he'll be shown the door.

The second 'hit' was Greg Fleming.I was slightly bemused.He is co-president with Mr Fakahany.What is lady luck trying to tell me.I have no idea.Yet still l believe the effigy-dart method to be very reliable .I think he will get chopped by Mr Thain because he's always grinning.In every picture l see of him,a Peter-Panesque grinning Mr Fleming stares out into the abyss.It's not good to exhibit so much good humour in such solemn times.Too much jollity on the shop floor is not appropriate.I trust my process,so l think he'll be gone too.

Of course the big redundancy program for everyone else will also be announced once Mr Thain gets on board and settled.Very excited,can't wait.Hope it's before Christmas.

RB

Merrill Lynch:SELL

2007-11-27T08:40:00.000+00:00

Yesterday Greg Fleming,Merrill's co-president told his minions,that he has "tremendous confidence" in the company's long term prospects.I worry about his mental health.

When senior staff talking like this it means one of two things.Firstly he is about to leave the company and needs to prop up the equity to cash in as he goes.Or secondly he has no clue what's really wrong with Merrill.The senior management should look in the mirror,they are the problem.

Famous last words like this also mean they are tempting fate.Watch how the shares prices tanks in the coming weeks.

RB

Gieve & Hawks and why recessions are good.

2007-11-24T19:31:00.000+00:00

Sir John Gieve is normally naturally Hawkish.As a Deputy Governor of The Bank of England his judgement is usually better than Mr King.As the real possibility of a recession appears on the horizon (well l never!), coupled with serious liquidity and credit quality issues even he's changed his mind. He is deputy Governor responsible for financial stability.So voting for a cut in the current environment for him makes sense.His boss has made financial markets unstable and to some extent he has to fix it.Of course it's an absurd suggestion when you keep in mind pricing pressure and real world inflation.

Rates need to rise in the short term to stem inflation.They also need to rise because both the UK (and the US) need a recession.Central Bankers and economists seem to have forgotten that they are a necessary part of the economic cycle.They allow the bloodletting needed to ease asset price bubbles,namely housing.Trying to avoid a recession is like trying to cheat death.It will get you in the end.It's just a matter of time.

Recessions of the non-depression era variety are excellent for businesses in the long term.Badly run companies fold.Increased unemployment means wage push inflation slows.After all if you're afraid of losing your job,you're not going to whine about no pay rises for a few years.

Recessions are secretly even more welcome in banks.Especially by senior managers.You can legitimately get rid of all the underlings you disliked.More importantly you can 'encourage' all the bright young things to leave.In an industry where endurance and cunning are more important than intelligence smart people have to be shaken out.For three reasons,firstly if you're a senior manager they could become a potential threat to you in future.Get rid of the competition,and you're safe for another five years.Secondly you need smart people to do jobs that can be of benefit to you in future.You need to know that if ever you need a dentist,doctor,architect etc that that person will be brighter than you are.Otherwise what's the point in having all that money.Thirdly recessions are good in the here and now.First class cabins become a lot less full,hotel suites less expensive,nice restaurants are quieter.Second,third,and fourth homes get cheaper.The Maybach waiting list shortens,its not all bad.Even if you get laid off in a downturn,you'll get paid off as well.So you can sit it out.

Sir Gieve is wrong we need emergency rate rises,all the way up to 10% at least.

All in all recessions are desirable if you're long cash and not overleveraged.I can't wait for it.I'm already planning my holiday schedule and a list of new property purchases as prices collapse.What about you?

RB

The bountiful rewards of destructive capitalism:Adam Applegarth,a modern executive's hero

2007-11-20T23:19:00.000+00:00

Adam Applegarth:Who's the fool?

I'm bored of the whole Northern Saga.Why shouldn't the tax payers pick up the bill.Apparently it's costing each tax payer in the UK £900 per head.

The public should regard this cost as a kind of idiot tax for employing morons in high public office,for example Darling.Public sector posts,including regulators and the Bank of England will normally attract the poorest quality job applicants.It's just a given.All things being equal,why would you become a civil servant and not a hedge fund manager? These left over no-hopers man the regulators and other 'supervisory' bodies.If you spend long enough in 'public service' you can get knighted and a nice pension.It's actually not a bad life at the top of these organisations.No accountability and endless financing underwritten by the populous.

I saw Adam Applegarth being quizzed by the treasury select committee.He's got a lovely soft voice, and a ye olde bank manager's manner.In another life he would have made a nice vicar or provincial GP.Trust me l'm a Doctor.Dr Strangelove.

Here's why the man is a genius.He worked out long before everyone else that globalisation meant that when he was 21 and looking for a job,he could make his fortune by staying in a nice backward part of the country.Namely Northumberland.A strange hybrid county,neither England nor Scotland,but generally encompassing the worst aspects of both.In this eternally drab landscape,he takes a provincial building society,floats it,re-engineers the business model.

He effectively ran an intermediary operation for packaged mortgage debt remotely from Newcastle for some of the more aggressive US investment banks,including Lehman.Unlike his counterparts running trading desks in the London based investment banks,Mr Applegarth ran one product,mortgages.Nothing fancy,exotic or complex.He got to come into work about 9ish,leave by 5.He is by his own admission a sports fanatic,so he followed his favourite football team.He was also captain of Sunderland cricket club.All in all he has and had a very good quality of life and held down nice undemanding day job.

He became CEO of the Rock in 2001,aged 39.His base compensation in 2007 was 760K.Lets add pension rights,bonus,and equity etc.Make the assumption that he made approximately 1.5 million per year since 2001.Lets do some rough and ready calculations then,ignore time value of money etc:

2001-2007 = 1.5 x 6= 9 million total comp

1983- 2001 =assume 8 million total comp

By my very rough numbers,I think he has taken about about 17 million pounds over his 24 years at Northern Rock.He wasn't particularly well paid as a FTSE 100 CEO,still he wasn't starving either.He has had an excellent quality of life up north.I'm told a million half a year is a lot of money in Gosforth.Now at 45 can now retire very happily.

He has therefore been quietly collecting little and often over 24 years,and now the game's up.I doubt if he's particularly bothered.It was just a job.

If you're middle aged investment banker in London reading this at 2 am at your desk.Rubbing your eyes,wondering whether your total comp might even reach half a million pounds.Think about the genius of Applegarth's approach.He's collected 17 million pounds , been and gone.He didn't have to compete in the urban rat race,work late,have to engage in bitchy office politics or learn about anything more complex than a mortgage.Who's the fool ?

RB

No Thain, no gain:The asymmetry of risk / reward in the boardroom

2007-11-16T23:31:00.000+00:00

No Thain, no gain:The asymmetry of risk / reward

Here's a strange thing.John Thain is taking the top job at Merrill.He must be bored indeed.

For his troubles, if he can turn the house around,his incentive bonus will be in the region of 100 million dollars.Stan took 160 million dollars for his part in Merrill's current downfall.Does that make any sense to you?

The compensation culture in investment banking and financial markets has turned the concept of performance based pay on it's head.If l destroy a company l can now expect to get paid more than if l run a company properly.It's completely counter-intuitive to the real world.It's how the mad hatter would structure a bonus culture.I love it.

RB

A King's Ransom

2007-11-16T22:32:00.000+00:00

He is apparently a brilliant economist.For me he is also the least able central banker in the developed world.

The governor has announced that there are likely be a number of rate cuts in 2008.Apparently this will be achieved despite the fact that oil prices are hovering around an all time high with no sign of weakness in the near term and metal prices and agricultural commodity prices are also increasing.All this indicates a 2008 environment of higher inflation and stagnant economic growth.Stagflation even.

The Bank of England's mandate is to be vigilant on inflation.Lowering rates in future won't achieve this.I have no idea what Mr King is talking about.I'm wondering whether he does either.

His performance this year doesn't fill me with confidence.

Let's look at the list of his recent achievements in 2007.Keeping inflation under control.Failed,had to write letter to chancellor.Oops.

Not pumping liquidity into capital markets when appropriate. Unlike the Fed and ECB,he didn't bother.This may have stopped the first run on a bank for 140 years.

Northern Rock,the farcical shenanigans and volte face on 'moral hazard' that led to systemic loss of confidence in UK banks & regulators.

Radio 4 interview,''I'm not to blame really,it's just l was ''bullied'' by Darling et al.

On balance I'm not sure a second term for the governor is appropriate.Given his recent musings,something tells me things are about to get worse on his next watch.In the land of the blind the one eyed man is king.

RB

Bear Necessities, Cayne it!:A salutary lesson in workplace presenteeism

2007-11-04T13:49:00.000+00:00

"Puritanism: The haunting fear that someone, somewhere, may be happy"

The Wall Street Journal is a pretty run of the mill paper.Editorials tend to be good.The quality of the rest of the journalism is quotidian the rest of the time.So there I was reading this weekend's European edition.There's an article on page 12 & 13 on the great and the good-how the top dogs spent the summer of 2007, but mainly focusing on James Cayne's behaviour.

The writer, Kate Kelly reproves Mr Cayne's behaviour,apparently "James Cayne hit golf links,bridge tournaments amid summer turmoil",and shock horror "In the critical month of July,he spent 10 of the 21 work-days out of the office,either at ..(a).. Bridge event or golfing".

Worse still the cardinal sin of a puritan and largely stupid work ethic,"In summer weeks,he typically left the office on Thursday afternoon and spent Friday at his New Jersey golf club"..and -oh my god-"out of touch".Burn him.It does sound like he's definitely in league with the Devil.

God forbid the poor man should have outside interests and put his leisure time ahead of 'work' interests.The writer goes on the compare and contrast this with Lloyd Blankfein who "cancelled plans to spend to spend the last two weeks of August at his Beach house,missing a chance to spend time with his sons before they headed to college.Through the summer's market gyrations,Mr Blankfein frequently visited Goldman mortgage desks."Yes his family must be really pleased with him.I think we are all supposed to admire Mr Blankfein.Instead he ends up sounding like a work obsessed,boring,lonely,control freak,micro manager,with literally no life outside work.A similarly Stakhanovite picture is painted of other wall street managers,like Chuck Prince of Citigroup.

Lets put it another way,I bet Stan O'Neal and his cronies were in the office all summer long.All he managed to do was get fired and tank the company.Later today the Citi Board will be sacking Mr Prince. NICE.